Jerome Powell Says The Housing Sector Has 'Weakened Significantly': Here's The Data That Supports It

Homeowners and prospective homebuyers alike are concerned about the future of the housing boom at the moment.

Will the recent surge in property values result in a crash like the one that caused the Great Recession to be so painful? Will prices just slow down from their extreme rate of appreciation?

Nobody knows, not even the head of the most prominent central bank in the world.

During the news conference following the meeting of the Federal Reserve Open Markets Committee, Fed Chairman Jerome Powell acknowledged a sharp rise in mortgage rates. They’ve gone from 2.86% in September 2021 to 6.02% now, according to YCharts 30-year mortgage rates.

“Activity in the housing sector has weakened significantly, in large part reflecting higher mortgage rates,” Powell said on Wednesday after delivering the third consecutive 75-basis point rate hike.

Last month, existing home sales fell in the U.S. for the seventh consecutive month as affordability continued to worsen due to rising mortgage rates and persistently high home prices, though the rate of loss slowed from previous months.

The National Association of Realtors said on Wednesday that existing home sales decreased 0.4% last month to a seasonally adjusted annual rate of 4.80 million units. This was the lowest sales level since November 2015, except for the decline in the spring of 2020.

The housing market has been severely impacted by the Fed's aggressive tightening of monetary policy, which is manifested in interest rate hikes. In contrast, despite the Fed's efforts to cool demand, other areas of the economy, such as the job market, have exhibited resilience.

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Will Housing Costs Fall?

Double-digit house price drops are occurring in frothy markets in Australia and Canada, and economists predict that the global downturn is just getting started.

“We will observe a globally synchronized housing market downturn in 2023 and 2024,” said Hideaki Hirata of Hosei University, a former Bank of Japan economist. He warns the full impact of this year’s aggressive rate hikes will take time to play out for households.

Photo: Pickadook via Shutterstock